SC Lawyer, July 2005, #3. The Class Action Fairness Act of 2005: procedural reforms for interstate class actions.

• Author: By Sarah Day Hurley

South Carolina Lawyer

2005.

SC Lawyer, July 2005, #3.

The Class Action Fairness Act of 2005: procedural reforms for interstate class actions

South Carolina LawyerJuly 2005The Class Action Fairness Act of 2005: procedural reforms for interstate class actionsBy Sarah Day HurleyIntroduction

On February 18, 2005, President Bush signed the Class Action Fairness Act of 2005, the stated purposes of which are to "assure fair and prompt recoveries for class members with legitimate claims," enable "Federal court consideration of interstate cases of national importance under diversity jurisdiction" and "benefit society by encouraging innovation and lowering consumer prices." The enactment of this statute is a result of Congress' efforts to curtail "abuses" in class action litigation, such as settlements that have resulted in huge fee awards to class counsel with little or no benefit to individual class members.

The Act establishes a new procedural landscape for litigating class actions by:

expanding the federal courts' jurisdiction to hear national class action lawsuits; eliminating certain obstacles to removal that ordinarily apply in diversity cases; establishing new procedures for the approval of settlements; and limiting or prohibiting settlements in which the lawyers receive greater benefits than the individual class members.

The changes imposed by the Act are for the most part procedural. The procedural reforms are designed to keep class actions of a purely local nature in the state courts while allowing interstate actions of "national importance" to be heard in the federal courts. The Act applies to civil actions filed on or after the date of enactment. As the Act creates new rules for jurisdiction, removal, appeal of remand orders and approval and reporting of settlements, any lawyer whose practice includes class action litigation will need to become familiar with the Act's provisions.

1. Expansion of the federal courts' jurisdiction to hear class actions

   One of the most notable provisions of the Act is its expansion of federal court jurisdiction over certain class actions. By requiring only "minimal" diversity, as opposed to "complete" diversity of citizenship among the parties, and by allowing the aggregation of individual class members' claims, the Act significantly expands the federal courts' jurisdiction to hear class action claims. Generally, a federal court now has jurisdiction to hear any class action in which (1) at least one member of the plaintiff class is a citizen of a state different from that of any defendant, (2) the amount in controversy exceeds $5,000,000, exclusive of interest and costs, and (3) there are at least 100 class members. 28 U.S.C. §§ 1332(d)(2) and (d)(5)(B). In a departure from prior case law, in which some courts have held that the claims of the class members could not be aggregated in order to determine the amount in controversy, under the Act the individual class members' claims "shall be" aggregated. § 1332(d)(1)(6). The new jurisdictional provisions apply to any class action either before or after the entry of any class certification order. § 1332(d)(8).

   While Congress has bestowed the federal courts with broader jurisdiction over class action claims, there are limits to that expansion. As discussed below, depending upon the number of class members from the forum state and other factors, there will be some cases over which the federal court will lack jurisdiction and others over which the federal court will have the authority to decline to exercise jurisdiction, even though the parameters specified above are met.

   (A) When may the court decline to exercise jurisdiction?

   The Act gives the federal courts discretionary jurisdiction over cases in which more than one-third but less than two-thirds of the class members and the "primary defendants" are citizens of the forum state. § 1332(d)(3). Again, there must be at least 100 class members. § 1332(d)(5)(B). In cases that fall within...